How Saudi slush kept UK aero biz afloat

Analysis The long-smouldering debate around allegations of corrupt British arms deals with Saudi Arabia reignited yesterday, as both the Guardian and the Beeb published the results of new investigations.

To recap: back in 1986, the Saudis agreed with the British government to buy a large amount of military hardware from UK firms under a long-term deal called al-Yamamah ("the dove").

The majority of the kit consisted of Tornado combat jets from the company then known as British Aerospace plc: both low-level strike versions intended to deliver the JP233 runway-denial landmine system, and the F3 fighter variant.

The JP233 and low-level runway attack doctrine are now widely viewed as suicidal, after RAF Tornados were decimated while using such tactics against Saddam Hussein's airbases in 1991. The RAF has since binned JP233 and re-equipped its Tornado bombers for higher-altitude work.

The Tornado F3 fighter was a laughing-stock from the moment it entered RAF service. Nonetheless, the RAF was forced to buy far more F3s than it wanted. As of 2004 the RAF had fewer than 90 F3s flying: 170 were bought during the 1980s and 1990s. The defective jets only reached a reasonable level of serviceability in the early to mid-90s according to some analyses (pdf), when their ever-troublesome Foxhunter targeting radars finally acquired Non-cooperative Target Recognition (NCTR) capability - lack of which, among other things, had kept British F3s out of the air fighting in 1991. The Tornado F3 started retiring from RAF service in 2005, scarcely 10 years after it had been brought to a somewhat combat-worthy state.

(The original F2 airframes first delivered to the RAF were even worse, in that they had no radar at all; just cement ballast in their empty nose cones. This was wryly dubbed "Blue Circle radar," in an allusion to the Sea Harrier's Blue Fox and Blue Vixen sets - and the well-known cement company.)

Despite the poor performance and reputation of the Tornados, the Saudis have continued to pay huge sums under al-Yamamah right up until the present day - more than £40bn to British Aerospace. The firm is nowadays known as BAE Systems, as it is no longer very British (only a third of its employees are today in the UK) nor does it only deal in sky weaponry, having moved into warships, submarines, armour, artillery etc etc.

Allegations of corruption surrounding the al-Yamamah deal surfaced almost immediately, and in 1989 the UK National Audit Office investigated. Uniquely, the report of the investigation remains secret to this day; a fact which may not be unconnected to the second stage of al-Yamamah having been signed the year before. By this point the British civil aircraft industry (which still existed at that date, and was owned by BAE) was only being kept in existence by al-Yamamah.*

Despite the suppression of the NAO report, the stink around the British arms industry and the Saudis never really went away. The Minister for Defence Procurement and later chief secretary to the Treasury, Jonathan Aitken, unwisely resigned from government in 1995 to bring a libel action against the Guardian and Granada TV for exposing his involvement in the UK-Saudi arms trade. He was cuffed and jailed in 1999 for repeatedly lying on oath during the failed libel case.

In 2001, the Guardian began taking the fight to BAE and the UK government, wheeling out whistleblowers and detailed investigations. Roman-Empire levels of excess were revealed, with BAE having picked up the tab for cargo planes full of Bond Street shopping, companionship from lingerie models and actresses, and lord knows what else. In 2002, the UK passed laws against corrupt payments to overseas officials.

Finally, in 2004, the UK Serious Fraud Office launched a new investigation. The Ministry of Defence (MoD), however, had full access to the investigation via the participation of the MoD police force.

By the summer of 2006, it was thought that the SFO/MoD-plod/Guardian probe might be getting somewhere, with Swiss authorities reportedly on the verge of yielding access to key bank information.

Meanwhile, the UK government had got itself into another nightmare fighter-jet deal, mirroring the situation with the Tornado F3. The long-awaited Eurofighter is finally being delivered, and the UK is committed to buying no less than 232 of these colossally expensive machines. The RAF wants no more than 140.

Then the Saudis stepped in again, ordering 72 Eurofighters. It has been strongly hinted by BAE that the UK government might be able to resell some of its excess jets to fulfil this order, thus avoiding another embarrassing acquisition of eight-figure white elephants. And, of course, the £6bn of Saudi money might do the British balance of payments a bit of good (not all that much, though; UK exports for 2006 alone are estimated at £235bn. £6bn spread over years barely signifies).

Strangely enough, at this point the SFO investigation was binned. It was strongly hinted that this was at the behest of the Secret Intelligence Service (SIS, aka MI6), who were said to be heavily reliant on intel furnished by the Saudis.

It's true that's a large element of what the spooks do - act as a channel for under-the-counter info from other governments. It's also true that BAE has a close relationship with the secret service (exiled SIS officer Richard Tomlinson says the company has an in-house MI6 liaison who sees secret intel reports). Even so, it's said that SIS doesn't fancy taking the rap for another suspect government decision so soon after the dodgy dossier/Iraq WMD business.

It seems hugely more plausible that the SFO investigation was deep-sixed to protect the weapons deal du jour, just like the NAO report of 1992 - for all that everyone involved denies this.

The denials haven't convinced many. The OECD international watchdog, for instance, has rebuked Britain over the move and launched its own probe. The US has also expressed its displeasure, which might cause trouble for BAE's ongoing push to buy US weaponsmaker Armor.

Meanwhile, those relatively unbothered about possible corruption overseas but concerned about the defence of the UK have also criticised the Saudi Eurofighter buy. Some might say that selling rubbish such as the Tornado F3 to the Saudis for a lot of money is one thing; but selling them the Eurofighter is quite another. Reports thus far suggest that the Eurofighter, for all its horrifying expense and delays, is actually a fairly cutting-edge piece of kit. Furthermore, the export deal is to be "Saudi-ised," potentially meaning that the desert princes will actually gain access to the technology rather than merely the use of the hardware.

It's possible to suggest that it isn't actually in the interests of western democracy to release such tech out into the wider world. The Saudis probably can't use it, but they wouldn't have any real reason to keep it to themselves.

All of which brings us up to yesterday, with the Guardianrevealing that Prince Bandar of the house al-Saud was paid more than £1bn over 10 years by BAE, which drew the cash from "a special Ministry of Defence account". The paper reported:

"According to legal sources familiar with the records, BAE Systems made cash transfers to Prince Bandar every three months for 10 years or more.

"The payments are alleged to have continued for at least 10 years and beyond 2002, when Britain outlawed corrupt payments to overseas officials.

"SFO investigators led by assistant director Helen Garlick first stumbled on the alleged payments, according to legal sources, when they unearthed highly classified documents at the MoD during their three-year investigation."

There isn't much doubt that the legal sources in question have had access to the SFO's now-closed files. When contacted by the Reg, an SFO spokesman said he couldn't comment on how the documents had reached the public domain.

"If I have a conversation with you, that's private to you and me," he said. "I wouldn't then give another journalist the details."

The SFO also pointed out that the Guardian in particular had been intimately involved in the investigation from the beginning. Indeed, the paper had supplied the information which led the SFO to move in the first place.

It's understood that the head of the SFO, in an interview to be broadcast on Panorama next Monday, has expressed the view that the details of the payments are not sufficient to win convictions even though some transactions date since the anti-corruption legislation of 2002.

This is thought to be because the payments were fully authorised by the British government and laid down in the al-Yamamah agreements; also because of the difficulty of distinguishing between corrupt payments to overseas individuals and legitimate ones into foreign government accounts.

The BBC quotes David Caruso, an investigator who worked for the American bank where the accounts were held:

"There wasn't a distinction between the accounts of the embassy, or official government accounts as we would call them, and the accounts of the royal family." Unsurprisingly, as the al-Saud family really are the government: it's Saudi Arabia, after all. The situation is as if Britain were called "Windsor Europe," and the Queen's family - rather than being junior army officers, theatrical types, polo players etc - held all important government jobs.

Prince Bandar's lawyers told the Guardian that the payments via the Washington embassy accounts in no way "represented improper secret commissions or 'backhanders'".

The Prince's position is that the cash went to Saudi government accounts of which he was a signatory. "Any monies paid out of those accounts were exclusively for purposes approved by [the Saudi defence ministry]."

Prince Bandar's reps insisted that all the payments were "pursuant to the al-Yamamah contracts."

When contacted by the Reg defence desk, BAE Systems' rep rather worryingly said: "We know who you are." But this turned out to be because of this book rather than any corporate spies at the Reg.

The company then offered the following comment: "All the information regarding the Al Yamamah contract in our possession has been made available to the Serious Fraud Office over the last two and a half years and, after an exhaustive investigation, it was concluded, over and above the interests of national security, that there was and is no case to answer.

"A spokesman for the Attorney General has confirmed that nothing in this week’s media reports alters this position.

"The Al Yamamah programme is a government-to-government agreement and all such payments made under those agreements were made with the express approval of both the Saudi and the UK governments.

"We deny all allegations of wrongdoing in relation to this important and strategic programme."

In other words, sure, Saudi princes were paid off; the UK government promised they would be in the original al-Yamamah treaty. Don't blame us: nothing to see here.

BAE reps also expressed the view that the ongoing media revelations would have no effect on US legislators' decision as to whether the company would be allowed to acquire Armor Group. That at least remains to be seen.

So does the effect on the reputation of the UK government, not least with respect to the ongoing OECD probe. The more so as it now appears that UK officials have been economical with the truth in discussions with OECD investigators. ®

Bootnote

*From 1988-90 your correspondent was an undergraduate management trainee at BAE's Hatfield civil-aircraft factory, now the site of the Ocado web-groceries warehouse; and from 1988-91 an RAF university-reservist cadet pilot.